Reviews of MHI pamphlet: “Can Income Redistribution Rescue Capitalism?”

Reviews of “Can Income Redistribution Rescue Capitalism?: On Monthly Review’s Factual & Theoretical Myths,” by Andrew Kliman


No, it can’t

First published in Jan. 2014 issue of Socialist Standard, publication of the Socialist Party of Great Britain

Subtitled ‘Monthly Review’s Factual & Theoretical Myths’ most of this pamphlet deals with the theoretical and statistical errors used by the USA’s dominant left-wing journal in explaining the latest capitalist economic crisis. The Monthly Review attributes the crisis to rising income inequality, with the clear implication that income redistribution can rescue capitalism, though it is doubtful that Monthly Review would admit to that implication. Underpinning Monthly Review’s explanation is an underconsumptionist theory of capitalist economic crisis, and this is Kliman’s main target. Underconsumption theory argues, basically, that crises are caused by a lack of effective demand.

Kliman shows that in Marx’s crisis theory crises result from the normal functioning of capitalism and are inevitable under it. Underconsumption theory, on the other hand, typically implies that something has gone wrong and can be remedied. Kliman also challenges the popular notion of the alleged success of the ‘neoliberal’ assault on the working class, the supposed decline in workers’ share of output, and their allegedly stagnating wages. He provides evidence that this notion ignores the substantial growth in the incomes of older, female, and more highly-educated working people. The evidence Kliman cites is mainly drawn from the USA but the point generally still stands. The history of capitalism shows that it is not inconsistent with rising living standards for the working class, and the 100 years prior to the 1970s saw consistently rising real wages in the USA and elsewhere but still with regular crises.

Kliman maintains that undue concern over inequality can divert attention from major economic problems like mass unemployment, people losing their homes, and poverty. And what about the fact, he says, which dominates most people’s lives, that they are forced to do what bosses tell them to do, day after day, year after year––or else starve? ‘Why is there so little outrage about this’, writes Kliman, ‘or even concern about it?’ The criticism here is mainly directed at the 2011 Occupy movement which generally focused less on these concrete problems and more on the abstraction ‘rising inequality’. Some may find this line of argument controversial, while for others it will be a breath of fresh air. It should be noted that, contrary to popular belief, Marx did not condemn capitalism for its inequality (rising or not), nor did he frame his arguments for socialism in terms of material equality. For revolutionary socialists, claims Kliman, the interests of the working class and the interests of the system are fundamentally opposed and ‘this is the primary reason why they maintain that revolutionary transformation of society is needed’ (Kliman’s emphasis).

Included in this pamphlet are selections from Kliman’s book The Failure of Capitalist Production (2011) where underconsumptionist theory is examined in detail. It is sometimes suggested that Marx held to an underconsumptionist position with this statement: ‘The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses’. However, capitalist production is production for the market with a view to sale and profit, not directly for human needs. It is profitability, or the lack of it, which creates the possibility of an economic crisis. And this possibility, argues Marx, is ‘no more than the possibility. For the development of this possibility into a reality a whole series of conditions is required’ (emphasis added). As Kliman points out, there is no suggestion here that crises are the result of persistently inadequate demand. Kliman is worried about the political implications of underconsumptionist theory because ‘underconsumptionism implies that a more equitable distribution of income will make capitalism work better’. This is a fallacy all socialists oppose.


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Untitled Review

First published in Socialist Studies, publication of the Reconstituted Socialist Party of Great Britain

“Can Income Redistribution Save capitalism?: On the Monthly Review’s Factual and Theoretical Myths” (September 2013) is the new pamphlet from Andrew Kliman, professor of economics at Pace University, New York and published by Marxist Humanist Initiative. In the pamphlet, Kliman criticises the “underconsumptionist” theories of economic crises associated with the Monthly Review, a left-wing magazine purporting to be a “Marxist” journal and founded by the late Paul Sweezy.

The pamphlet is 76 pages long and the question of income distribution arises out of Kliman’s own book, THE FAILURE OF CAPITALIST PRODUCTION (2012) in which he critically assessed the underconsumptionist theories of the capitalist Left. Now Kliman’s attention turns to recent articles defending underconsumptionism found in the MONTHLY REVIEW which he believes commit “factual and theoretical myths” opening the way for a “justification” of a reformist not a revolutionary politics. The objective of underconsumptionists, he shows, is to make capitalist production coincide with balanced growth and for mass consumption to develop simultaneously with productive capacity through the framework of government intervention and a highly regulated economy.

Kliman’s particular critique of underconsumptionism is against the article Class War and Labour’s Declining Share (MONTHLY REVIEW 64.10 March 2013) written by Fred Magdoff and John Bellemy Foster, an article Kliman spends the first part of his pamphlet showing to be factually and theoretically false.

And the political implications for those arguing for an enlightened government policy on income distribution should not be underestimated. Kliman makes this important point about what is at stake:

Marx’s theory of capitalist crisis has revolutionary implications, since it suggests that the crises result from the normal functioning of the system and are inevitable under it. In contrast, underconsumptionist theory lends itself to efforts to make capitalism work better (p.5)

Kliman argues that most underconsumptionist theories –both in their crude and sophisticated forms – hold the belief that economic crises and depressions are caused by a lack of spending, and generally, if the working class could be paid more in wages and salaries to then spend this additional income on consumer goods then the economy would improve.

The principal underconsumptionist assumption is that there is a fundamental structural problem within capitalist production in which the capacity to produce grows more rapidly than its output. Instead of advocating Marx’s conclusion that the working class should abolish the wages system and establish Socialism, academics –from Paul Sweezy to Magdoff and Foster – appeal to some form of radical Keynesianism policy enacted by “enlightened” governments to fill the underconsumptionists’ black hole. Socialist revolutionaries they are not.

And Marx is constantly being misrepresented. Kliman points out that those who support underconsumptionism fail to understand Marx’s schemes of simple and extended reproduction to be found in the last chapters of Capital, VOLUME II where the means of production are used to produce additional means of production. Underconsumptionists believe, in a misreading of Marx that under capitalism production takes place for the sake of production turning Marx into a precursor of neo-classical economics and growth theory.

Quite a lot of production in capitalism takes the form of means of production producing means of production not for final consumer consumption of commodities in a supermarket or car show room. And Kliman gives as an example the production of iron being fashioned into metal to create equipment that is sold back to the iron manufacture

Kliman writes:

…nowhere down the line is it the case that all iron, steel, and mining equipment enters into the production of consumer goods. The growth of this final part of output is not constrained by “human consumption” since its demanders are not humans, but capitalist companies (p.52).

Kliman reminds us, that rather than capitalism being a system of production for consumption, the profit system produces for production’s sake – the self-expansion of value and capital accumulation. He goes on to say that underconsumptionism:

“mistakes the effect, lack of demand, for the cause, and the cause, insufficient past profitability, and expected future profitability, for the effect (p55).

In any case, when Marx set up his schemes of simple and extended reproduction into two departments in the Second volume of CAPITAL; Department I producing the means of production and Department II producing the means of consumption it was not to show that balanced growth under capitalism was possible but, among other things, contained the germ of why crises take place within capitalism due to the anarchy of production (see in particular ch. 21 Accumulation and Reproduction on an Expanded Scale). Marx concluded that the illustrations in the chapter show that:

…the normal course of reproduction, whether simple or on an expanded scale, (…) turn into an equal number of conditions for an abnormal course, possibilities of crisis, since on the basis of the spontaneous pattern of this production, this balance is itself an accident (p. 571)

And these schemes were never meant to be representative of capitalist reality, a mistake first made by Otto Bauer, later by Rosa Luxemburg and then reproduced by Paul Sweezy in his works from the 1950’s onwards. The underconsumptionists argue that inevitably the industrial capitalists produce more commodities than the workers can purchase, leading periodically to massive overproduction, factory closures, stockpiling of unwanted commodities, unemployment and economic depression, what they call, a general crisis of industrial overproduction.

The theory of “Underconsumptionism” is, according to Kliman, the dominant thinking on the Left in which Marx’s idea of economic crises is generally understood. Yet Marx was no underconsumptionist. Marx’s dismissal of “underconsumptionism” is to be found in volume II of CAPITAL where he writes:

It is a sheer tautology to say that crises are caused by the scarcity of effective consumption, or effective consumers. The capitalist system does not know any other modes of consumption than effective ones…That commodities are unsalable means only that no effective purchasers have been found for them… (pp. 410-411)

One interesting aspect of the pamphlet is Kliman’s revisiting of Baran and Sweezy’s influential book MONOPOLY CAPITAL – AN ESSAY ON THE AMERICAN ECONOMIC ORDER (1966). He points out that the book contains not only a glaring logical error carried over into the underconsumptionist theories of economists like Fred Magdoff and John Bellemy Foster but, some 40 odd years later:

…continues to be a great influence in parts of the academic and political left…” (p.57)

Baran and Sweezy’s defence of the underconsumptionist theory of crisis and slumps is little more than a page long (p81.) in which they ask the question whether investment demand can absorb “a rising share of a rising surplus”, a view which they reject. Kliman proceeds to demolish their theory line by line through close argument and supporting statistical evidence concluding:

…despite what Baran and Sweezy assert, a rise in the investment share of income need not lead to an eventual decline in investment, income, employment, and the surplus. In other words, the argument has done nothing to show that “investment pattern is self-limiting and ends in economic down-turn (p.59)

Finally Kliman argues that all current underconsumption theories are reformist in that they believe that “a trickle-up” economics (can something trickle-up unaided by political agency?) rather than a Monetarist “trickle-down” economics will not only be good for the working class but also good for capitalism. In other words they offer the working class a non-revolutionary route to resolve their problems under capitalism which is, in effect no route at all.

Sweezy’s own fall from his 1942 “highpoint” as a “radical economist” is recorded by Professor Kliman. In an article “ECONOMIC REMINISCENCES” (Monthly Review 47:1, 1-11, May 1995) Sweezy reflected on the problems of the working class and asked the question “what could be done within the framework of the private-enterprise system to make it work better?,,,” . Is this the type of question to be asked by someone claiming to be a “Marxist economist”? We think not. Yet when he died in 2004 he was uncritically hailed in the obituary columns as “a Marxist”!!!!

As a postscript the question can be asked: what did Sweezy and the Monthly Review School contribute to an understanding of Marx? Sweezy falsely claimed Marx to be an “underconsumptionist” and then went on to produce an underconsumptionist theory of his own. Sweezy also published von Bortkiewicz’s 1907 paper “On the Correction of Marx’s Fundamental Theoretical Construction in the Third Volume of Capital” allegedly “proving” the inconsistency of Marx’s transformation of value to prices of production as an appendix to KARL MARX AND THE CLOSE OF HIS SYSTEM (1948). Bortkiewicz’s paper appears without critical comment save for Sweezy mistakenly stating Bortkiewicz was a “Ricardian”. In fact Bortkiewicz was an ardent supporter of Leon Walras, a leading supporter of the marginal utility school of economics –the vulgar and apologetic economic reaction at the turn of the 20th century against Marx’s scientific critique of political economy.

Sweezy then went on to admit that the mathematics contained in Bortkiewicz’s paper were beyond him while citing in a footnote a trio of economists led by Maurice Dobb, all of whom believed Marx’s transformation of values into prices of production to be inconsistent; a fallacy picked up and later developed by the Keynesian economist Paul Samuelson. Consequently, economists on the Left lazily reproduced von Bortkiewicz’s criticism of Marx (see, for example, MARX’S ECONOMICS (1982) by P. N. Junankar and AN INTRODUCTION TO MARXIST POLITICAL ECONOMY (1985) by B. Onimode a writer clearly influenced by Paul Sweezy).

The consequence of the alleged inconsistency in Marx’s transformation of values into prices of production for students attending courses in Marxian economics during the 1970’s and 1980’s was wholly negative. As someone attending lectures on Marxian Economics at what was then the North East London Polytechnic in the early 1980’s, this writer recalls the economic lecturer telling students at a seminar on “Marxian Economics” that Marx’s CAPITAL was riddled with errors and inconsistencies while no one took his Labour Theory of Value seriously anymore.

Marx’s “theoretical errors” had been received economic wisdom in left-wing academic circles for over fifty odd years and it has only been in the last decade that Marx’s detractors have themselves been shown to be wrong (see among others, A. Kliman’s RECLAIMING MARX’S CAPITAL, 2010). There was never any inconsistency between the first and third volumes of CAPITAL if Marx was considered and more importantly, read in his own terms rather than his presentation of values into prices of production transformed by his opponents into a static series of simultaneous equations.

As for Sweezy’s and the Monthly Review School’s underconsumptionist theories, Marx would have said that if this was “Marxism” then he was no Marxist!


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